What are Closing Costs When Buying and Selling a Home?

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When it comes to buying and selling a house, “closing costs” is one of those real estate terms that gets thrown about by real estate agents and lenders, but most buyers and sellers don’t really have a good idea of what these closing costs are or how (or if!) they will affect the sale price.

Let’s take a look at how closing costs work and what you need to know before you buy or sell your next home.

How Closing Costs Actually Work

First, in case you were wondering, a “closing” is a point in time when a buyer and seller meet for the purpose of transferring the title of the property from the seller to the buyer. The closing costs are the fees that are associated with the purchase of the property that are paid at the closing.

In most cases, the buyer typically pays the majority of the fees and the seller pays the real estate commission to the Realtor that negotiated the sale of the home.

This is one area of a real estate transaction that buyers and sellers can negotiate on, however, and it is not uncommon for a seller to agree to pay a portion of the closing costs in agreement for something else.

As an example, instead of paying for the installation of the new carpet before the buyer purchases the property, the seller may agree to pay a portion of the closing costs and the buyer will pay for their own new carpet after the transaction is completed.

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How Do Closing Costs Affect the Sale Price?

Closing costs affect the buyer and seller both, but in two different ways.

For the seller, it means that since they are paying a commission to a real estate agent, they will receive less cash than what they agreed to sell the house for.

While it doesn’t really affect the price of the house for the buyer, it is an extra amount of money that they will have to come up with at the closing. This is usually handled by simply rolling the amount of closing costs into the amount of the mortgage loan. The closing costs are then paid back over time as the buyer pays off their mortgage.

Some of the More Common Closing Costs

Attorney Fees: Once a house is under contract, there are a lot of people working behind the scenes to ensure that the sale of the property goes through. One of these people is the attorney and their staff. Since they are working on behalf of the buyer, their fees are normally part of the closing costs.

HOA fees: Some properties in subdivisions have a Homeowners Association with monthly dues. These dues must be paid and up-to-date at the time of the closing.

Real estate agent/Realtor commissions: This is usually one of the biggest closing costs that are paid. It is generally a percentage of the purchase price and is split between the buyer’s agent and the seller’s agent. This percent can vary but is typically between 6 to 7 percent for a residential home.

Recording fee: This fee covers the cost of transferring the title from the seller to the buyer. Once the transaction is complete the title is recorded at the courthouse in the county where the property is located.

Title insurance: A form of indemnity insurance that protects both the mortgage lender and the buyer from claims against the property. Note that this is not the same as the home insurance that protects your home from damages that could occur, such as fire or tornados.

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How Much are Closing Costs?

Closing costs are usually determined by using a percentage of the purchase price of the home that is being purchased.

On average, a homebuyer can expect to pay somewhere between about 2 to 5 percent in closing fees, so if you are purchasing a house that costs $150,000, you could pay between $3,000 and $7,500 in closing costs. You should expect to pay approximately $3,700 in closing fees, according to a recent Zillow survey.

Are You Ready to Buy or Sell a Home?

kristen-reed-cartersville-realtorIf you’re ready to buy or sell a home in the Metro Atlanta area, you need a real estate professional who knows the area and can help you get the best deal. Kristen Reed is an experienced Realtor who knows and understands the Metro Atlanta real estate market. Houses are selling fast, so don’t delay!